BANGKOK (Reuters) — Pressure on Thailand's
embattled government mounted on Tuesday, when a flagship rice-buying
scheme vital to its support stumbled closer to collapse and the
opposition filed legal challenges that could void a disrupted weekend
election.

The crisis in the rice scheme is a humiliating blow for Prime
Minister Yingluck Shinawatra — it helped sweep her to power in 2011,
but has become mired in allegations of corruption and growing losses
that are making it increasingly hard to fund.

The commerce minister said China had canceled an order for 1.2
million tons of rice due to a corruption probe, while state-run
Krung Thai Bank (KTB) joined other lenders in saying it would not
provide loans urgently needed to rescue it.

Protesters succeeded in disrupted voting in a fifth of
constituencies in Sunday's election. The incomplete poll means
Yingluck could head a caretaker administration for months, unable to
make policy decisions, while demonstrators continue to block parts
of the capital as they have been since November.

The opposition Democrat Party boycotted the election and on Tuesday
filed challenges to its legality. It is also trying to get
Yingluck's Puea Thai Party disbanded for holding the vote under
abnormal circumstances, with Bangkok under a state of emergency.

"We will argue that the election violated the constitution,"
spokesman Chavanond Intarakomalyasut said. "In a separate petition,
we will file for the dissolution of Puea Thai Party."

The Democrat's last spell in power, between 2008 and 2011, came
after the courts banned a previous ruling party loyal to Yingluck's
elder brother, Thaksin Shinawatra.

The rice program was one of the populist policies pioneered by
Thaksin, a former prime minister central to a stubborn conflict that
has divided Thais for at least eight years. He was toppled by the
military in 2006.

Losses to the taxpayer, estimated at 200 billion baht ($6 billion) a
year, have fuelled protests against Yingluck's government, and
payment problems now risk alienating farmers at the heart of her
support base in the poorer north and northeast.

TAXPAYERS' MONEY

The anti-government demonstrators, mostly from Bangkok and the
south, say Yingluck is Thaksin's puppet and the costly giveaways
that won his parties every election since 2001 are tantamount to
vote-buying using taxpayers' money.

They say Thaksin's new political order is tainted by graft and
cronyism and want an appointed "people's council" to replace
Yingluck and overhaul a political system hijacked by her brother,
who lives in exile to avoid a jail term for graft.

Yingluck and her government are being investigated by an anti-graft
panel for alleged irregularities in the rice scheme. That and other
cases going through Thailand's politicized courts could dissolve her
Puea Thai Party and ban top officials.

The Election Commission said it was looking into complaints over
alleged abuse of authority by the government during Sunday's vote
and would meet on Wednesday to discuss disruption before and during
the poll.

Ten people have been killed in sporadic violence since the
anti-government protests began late last year. The election was
generally peaceful, however, with no repeat of the chaos seen on
Saturday when supporters and opponents of Yingluck clashed in north
Bangkok, and the capital has been calm this week.

More than a million farmers are owed money from the government for
the rice subsidy scheme, which was supposed to guarantee them an
above-market price, and some have protested in the provinces,
blocking major roads.

The government is struggling to find the 130 billion baht it needs
to pay them and sought bridging loans from banks.

So far none has agreed, not even lenders in which the government
holds stakes, such as KTB, 500 of whose employees held a
demonstration on Tuesday to urge executives not to provide any loan.

"Some legal issues are not clear and the bank will not get involved
in the rice-buying scheme at this point," KTB President Vorapak
Tanyawong told reporters. "We don't want to get involved in
corruption."

The government scheme has pushed up the price of Thai rice at a time
of weak global demand, making it difficult to sell. Industry experts
estimate state stocks are as high as 15 million tons.

Commerce Minister Niwatthamrong Bunsongphaisan said a tender would
be held to sell 400,000 tons from stocks next week after China
scrapped the deal agreed last year.

"China lacks confidence to do business with us after the National
Anti-Corruption Commission started investigations into the
transparency of rice deals between Thailand and China," he told
reporters.

The anti-government protesters closed two of their camps on Monday.
They have blocked big intersections in Bangkok since January 13 and
their leader, Suthep Thaugsuban, said efforts were being made to
minimize public disruption.

"But this does not affect our decision to surround and close
government ministries," Suthep said. "We will push ahead."

The election is almost certain to renew Yingluck's mandate, although
it is unclear when re-runs of votes will be held.

Her supporters believe the military and the establishment, including
the judiciary, are threatened by the rise of the billionaire
Shinawatra family and accuse them of colluding over the years to
oust governments led by or allied to Thaksin.

The coup-prone military has stayed in the wings this time, offering
to mediate with no success.